If you are planning on investing in cryptocurrencies you need to know the difference between Bitcoin and Altcoins. If you are ready to invest in cryptocurrency in 2021, it is important to understand where each cryptocurrency gets its value from. When you go to an online exchange to buy crypto in Canada, you will see that there are many different cryptocurrencies available.
Bitcoin is the cryptocurrency that made all other cryptocurrencies possible. In 2008 the pseudonymous Satoshi Nakamoto created Bitcoin, a purely digital currency that relied on decentralized computers approving transactions worldwide. The reason Bitcoin succeeded, unlike early attempts, is that its creators were able to effectively apply blockchain technology.
Blockchain is an encryption method that relies on thousands of individual computers that encrypt and securely decrypt transactions. Once Bitcoin proved that secure digital currencies were possible, many others followed suit.
In an estimation from CoinMarketCap, as of early 2020, there were more than 5,000 cryptocurrencies. And of these cryptocurrencies, altcoins accounted for over 30% of the market.
The main difference between Bitcoin and altcoins is where their value comes from. Bitcoin is often referred to as cryptocurrency “gold” because, like gold, there is nothing that backs its value. And, gold sets the standard for how other assets or currencies are valued, hence the “gold standard.”
Bitcoin gets its value as the originator of all digital currencies and from its limitless peer-to-peer potential. There is little doubt of Bitcoin’s staying power and its future value.
However, Bitcoin does have several limitations. For starters, it is very expensive. This is good news for early adopters, but for those who are trying to get it now, it is very expensive. At the time of this article, it is valued at over $50,000 USD. But a benefit of Bitcoin is that you can buy fractional amounts.
Other limitations are the result of the difficultly of completing transactions. One of the reasons for Bitcoin’s success is its encryption. This encryption relies on very complicated mathematical problems that competing computers must solve in order for each transaction to be completed. This is called hashing. Because of the difficultly, the energy it takes to cover the expense of making these transactions is huge.
As the energy required is so expensive, it is not an ideal currency for making small or basic transactions. This means that Bitcoin is typically held, rather than used as a currency for exchange, which was its original design.
Finally, Bitcoin is very volatile. Again, not necessarily a bad thing, but while BTC is up over $50,000 currently, but only 12 months ago, it was worth less than $10,000 USD. And with very little historical data and analysis, it is difficult to get a strong hold on the future of its value.
Investment Alternatives – Altcoins
There are many excellent alternative cryptocurrencies to invest in. In this section we explain what makes an altcoin, as well as the several of the kinds of altcoins available on the market today.
As mentioned, Bitcoin is very volatile. In an effort to reduce the volatility of cryptocurrencies, Stablecoins were created. Stablecoins are “stable” because they are backed by another commodity, asset, or fiat currency. Facebook’s prospective Libra is a famous stablecoin as it is backed by several banks, financial institutions and credit card companies.
Security tokens work much like IPOs and are often referred to as ICOs, initial coin offerings. These are tokens that are used to invest in new projects and hope to offer investors early investment offerings. Ethereum’s ETH was created using an ICO method. ETH is the most successful ICO to date.
Utility tokens, or sometimes native tokens, are often designed to work with a specific project, much like an ICO. You may need to purchase this kind of cryptocurrency to use their products or services. They can also be used as currencies for exchange. But their value is grounded in the success of a given project.
There is value in investing in both Bitcoin and Altcoins. Ethereum, Litecoin, and Ripple are examples of altcoins that have remained on top of the marketplace, following Bitcoin. Altcoins are an excellent way to diversify one’s crypto portfolio, as many altcoins are attached to very lucrative and promising projects.
Bitcoin Futures Heating Up, Why BTC Traders Should Expect Volatility
Bitcoin has been moving sideways during the day as it was rejected north of $63,000. As of press time, BTC’s price trades at $62,698 with a 1% profit in the weekly chart.
However, Bitcoin could see some action in the short term. The benchmark crypto has been rallying on the back of an increase in institutional demand and the launch of the first BTC-linked ETFs in the U.S.
As a consequence, Bitcoin went from the lows at $40,000 to a new all-time high in less than a week. This caused a FOMO effect most notoriously visible in the derivatives sector.
As CryptoQuant showed, the amount of leverage positions in this sector has been on the rise since the end of September. Moving to a year high with BTC’s price, the leverage ratio points to an excess which could be reflected on the price action.
The CEO of CryptoQuant Ki Young Ju believes this excess in leverage is caused by new players, as it is has happened historically when Bitcoin enters price discovery. Usually, the market reacts with a sudden move to the opposite direction of the majority of the overleverage position.
Whales and other major players try to shake out these new traders and take advantage of the liquidity in the market to make their own moves. In response to the possibility of the current high leverage in Bitcoin futures been driven by Chicago Mercantile Exchange (CME) futures Open Interest, Young Ju clarified:
This data doesn’t take into account CME futures. I think CME users are new players joining this industry, which indicates the market is over-leveraged by *existing* investors who are using crypto exchanges. Folks who use CME might not have over-leveraged positions.
New BTC ETFs, Same Bitcoin Price Action
The recently launched Bitcoin ETF are backed by CME futures. Therefore, some expects believe the platform could gain more relevance in the future and have a bigger impact in BTC’s price.
In case of volatility, Bitcoin could find critical support at $60,000, as $840 million in futures contracts were purchased when BTC’s price was hitting this mark, Young Ju said.
As noted by research firm Glassnode, the OI for the CME futures has increased by over 265% in just a month. This points towards a moment of euphoria which has favored the bears over the past months
However, the general sentiment around Bitcoin remains positive as Glassnode reported. This demonstrated by the amount of long-term investors that have stopped taking profits during BTC’s most recent price rally.
Bitcoin Funding Rates Touch Same Level As Early September, More Correction To Come?
Data shows Bitcoin funding rates right now are at the same level as they were in early September. This means the coin may see another flush out similar to how it happened back then.
Bitcoin Funding Rates Float Around Similar Levels To Early September
As per this week’s on-chain report from Glassnode, the BTC futures perpetual funding rate of all exchanges is currently at the level similar to what it was back in early September before the crash.
The “funding rates” is an indicator that shows the premium that traders have to pay each other while holding on to their positions in the perpetual swap futures markets.
When the metric has negative values, it means that short traders are paying longs, and that many traders are bearish on Bitcoin right now.
Opposite to that, positive funding rates imply that the overall market sentiment is leaning towards bullish and longs are currently paying shorts to keep their positions.
Now, here is a chart that highlights the trend in the value of the indicator over the last six months:
Looks like the metric is currently showing highly positive values | Source: Glassnode's The Week On-Chain, Week 43
As the above graph shows, when Bitcoin made its new all-time high (ATH) some days ago, the indicator reached positive local highs.
This means traders started opening many leveraged long positions so that they don’t miss out on the wave of BTC making new ATHs.
However, the price had a correction, which has often been the case during periods of high leverage, and a lot of the excess leverage was flushed out.
Nonetheless, the funding rates are still at similarly high levels right now as in early September. What followed then was the El Salvador crash that took the rates to negative values.
It’s possible another correction can take place now in order to flush out more of the currently high leverage in the market. Though it’s not a certainty that it will be how it plays out.
At the time of writing, Bitcoin’s price floats around $62.5k, down 0.4% in the last seven days. Over the past month, the crypto has gained 44% in value.
The below chart shows the trend in the price of the crypto over the last five days.
BTC's price seems to be recovering somewhat from the dip | Source: BTCUSD on TradingView
Over the last few days, Bitcoin has shown some effort to bounce back from the correction, but in the last couple of days, the crypto has only moved rather sideways. If the futures funding rates are anything to go by, the market may be heading towards another correction soon that will wipe out the excess leverage.
South Korean pension fund to invest in Bitcoin ETF: Report
South Korea’s public pension fund, the Korean Teachers’ Credit Union (KTCU), is reportedly looking to gain exposure to Bitcoin (BTC) via a crypto exchange-traded fund (ETF).
KTCU, one of the largest institutional investors in South Korea, is considering investing in a pure Bitcoin ETF or Bitcoin-linked ETFs in the first half of 2022, local news agency The Korea Economic Daily reported Monday.
According to the report, KTCU is considering investing in several Bitcoin ETF products, including those by South Korean asset management firm Mirae Asset Global Investments. The company launched two ETFs tracking the value of Bitcoin futures via its Canadian subsidiary, Horizons ETFs, in April 2021.
“As there are some well-made cryptocurrency-linked ETF products by asset managers such as Korea’s Mirae Asset Global Investments, we plan to invest in the ETF products after consultation with domestic asset managers,” an executive at KTCU reportedly said.
The official also mentioned potential investment in a Bitcoin ETF by Mirae Asset’s subsidiary, Global X ETFs, which filed for a Bitcoin ETF with the United States Securities and Exchange Commission in July.
According to the report, KTCU is the second-largest institutional investor in South Korea, with $40.2 billion in assets under management. The pension fund has allocated 40% of its investments in alternative assets, 10% domestic and 9% international stocks. KTCU has yet to determine the size and other details of its potential Bitcoin ETF investment.
The news comes amid global pension funds getting increasingly interested in gaining exposure to cryptocurrencies like Bitcoin and major companies in the industry. Last week, the Houston Firefighters’ Relief and Retirement Fund reportedly purchased $25 million in Bitcoin and Ether (ETH). Canada’s Ontario Teachers’ Pension Plan Board participated in a $420-million funding round for major crypto exchange FTX, the firm announced on Thursday.